Economist Jeremy Stephen has dismissed the proposals to shore-up Barbados’ foreign exchange reserves. See interview below from Barbados TODAY.
PROPOSALS PUT FORWARD by the Foreign Exchange Working Group of the Social Partnerships to help the Freundel Stuart administration shore up the dwindling foreign exchange reserves have been dismissed as “piecemeal” by one of the island’s leading economists.
The recommendations currently before Government for consideration include a hike in cruise visitor head taxes and airport departure fees and a full examination of the national import bill “with a view to identifying a list of non-essential items which would be subjected to higher tax rates and or quantifiable limits”.
The committee also recommended a stepped up programme of incentives with a view to attracting more investment to the island, major engagement with the international business sector with a view to making it easier for the sector to do business here, engagement by Government and the Central Bank with the high-end business and financial community on “a targeted programme of sterilized short and medium term loans”, the facilitation of philanthropy by external high net worth individuals and remittances by the Barbadian Diaspora and frequent opportunities for domestic duty-free shopping zones where both locals and visitors can purchase items at duty-free prices in United States dollars.
However, making specific reference to the proposed rise in airport departure taxes, economist Jeremy Stephen said some of these recommendations would do little improve the foreign exchange reserves.
“Unless the whole purpose behind raising the airport taxes was more along the case of retaining taxes, being able to grow tax revenue, I as an economist cannot fully support the rationale of that leading to foreign exchange retention as such, given the fact that most departure taxes are paid in local currency to begin with,” he told Barbados TODAY.
He maintained that the focus needed to be on retention, and incentivizing the private sector “to bring money back home”.
He suggested this could include implementation of the plan announced by Minister of Finance Chris Sinckler in last year’s Budget, to create the duty-free zones.
“That would help with retention because that means essentially dollarizing the Barbadian economy; that is you’re gonna have a parallel spend in the economy based in US dollars on shore. That’s one way you could retain.”
He also pointed to the latest calls from the private sector to reduce the deficit, saying both the public and private sectors needed to do their part in that regard.
“A lot of classical economic recommendations have been made with respect to how you reduce wastage in Government spending, but there’s not been any necessary political will to force that on people just yet . . . but the reality of the situation is that private sector investment has been minimal at best the last couple years, without Government concessions somehow backing it,” Stephen said, pointing to a need for civic engagement from the business community.
A second committee, this one mandated by Stuart to present recommendations on how to reduce the worrying fiscal deficit, had suggested an across-the-board 10-15 per cent rate of Value Added Tax (VAT) with no exemptions, concessions or zero ratings for any industry or sector.
It is a proposal that has not gone down well with political analyst Peter Wickham, who told Barbados TODAY he was sceptical about the benefits of such a move.
“If Government is concerned with increasing revenue, a reduction in Value Added Tax might not necessarily be the most helpful thing. I am more inclined these days to consider what St Lucia is looking at, which is the removal of value added tax and replacement [with] a sales tax… I wonder why the private sector might not have wanted to give consideration to that. A 15 per cent sales tax on everything as opposed to a value added tax which is chargeable against other expenses,” he said.
With Sinckler set to present the Budget before the end of next month, Wickham warned it ought not be a “giveaway” budget, as the Minister of Finance has to be fiscally responsible, given the current state of the economy.
“He cannot go giving away stuff as consistent with what people do during an election. And I also think he needs to send a message that he is able to deal with the deficit. He has created one in the Estimates, and I’m anxious to see how he will close it in the context of retaining popularity,” he stated.
